As lockdown lifts in phases, FM to ask PSBs to spur lending

With small and medium businesses and Non-banking finance companies, their prime lenders, raising the issue of credit flow, Finance Minister Nirmala Sitharaman will meet public sector bank heads on Monday to get a handle of the situation on the ground.

The minister is also expected to assess the lenders’ preparedness to disburse loan to industries and people once the lockdown is fully lifted. Most of the loan requirements will have to be fulfilled by public sector banks as NBFCs capacity to lend has been almost eroded by the corona crisis.

Banks have been flooded with funds and the data shows they have parked a staggering Rs 8.5 lakh crore back with the Reserve Bank of India (RBI) through the safe reverse repo window in a single day early this week. This is because there is almost no demand for credit either from the personal loan borrowers or the industry due to pandemic-related lockdown. And, the banks are risk averse in lending to NBFCs and microfinance institutions.

Hence, despite RBI making it unattractive by slashing interest rate on reverse repo to 3.75 per cent in March, banks have been offloading enormous amount at a safe desitnation.

But, once the lockdown is lifted there could be a gush of demand for loans from the banks. The expectations are that the seekers of credit from the NBFCs will also turn to banks due to the crisis almost eroding the capacity of shadow lenders to extend fresh credit to borrowers.

The Finance Minister is expected to talk about lifting the non-food credit, which has slumped below 7 per cent last month from a double digit growth of over 13 per cent in 2019, the latest data with RBI suggests.